USDC and USDT were the two largest and most adopted stablecoins in this historical comparison.
At the time, I preferred USDC for its reserve attestations while recognizing USDT's greater liquidity and trading-pair availability.
I valued transparency, and USDC's publicly verifiable attestations gave me more confidence in its reserve reporting. While USDT had higher trading volume and liquidity, the gaps and controversies I identified in its reporting drove my preference for USDC.
The USDC vs DAI comparison examines USDC against a decentralized stablecoin.
How Are USDC and USDT Similar?
Both USDC and USDT are fiat-collateralized, meaning they are backed by US dollars.
Both USDC and USDT operate on a 1:1 conversion system as each stablecoin is redeemed by an equivalent dollar amount.
Both USDC and USDT were used to reduce price volatility relative to other crypto assets.
I can purchase both stablecoins from the same platforms (cryptocurrency exchanges).
Both USDC and USDT utilize the same hardware wallets.
1. Fiat-Collateralization
USDC and USDT are both backed by fiat currency, the US dollar. Each stablecoin provides a 1:1 conversion redeemed by the US dollar. They are considered off-chain assets since the collateral isn't another cryptocurrency.
The fiat collateral is retained in reserve with a financial institution or central issuer and remains proportionate to the stablecoin tokens in circulation (in theory...).
2. Security to Investors
Both stablecoins were designed to minimize price volatility while retaining the transferability of cryptocurrencies, so traders often used them as a hedge against broader crypto-market volatility.
3. Wallet Compatibility
Both USDC and USDT can transact on the Ethereum blockchain as ERC-20 tokens. They therefore had similar wallet and storage compatibility, including offline storage on compatible hardware wallets.
Both had expanded to multiple blockchains, including Binance Smart Chain and Tron. USDT supported a broader set of networks at the time, which made it more versatile in that respect.
How are USDC and USDT Different?
Market Capitalization - USDC has a market cap of USD 32.7 Billion with 32.7 billion coins in circulation. USDT has a market cap of $69 Billion USD with 69 billion coins in circulation.
Ownership - USDC was launched in 2018 and is issued and managed by a consortium called Centre. Circle Ltd and members from Coinbase founded Centre. USDT was launched in 2014 and is issued and managed by Tether Holdings, which Bitfinex controls.
Trust and Transparency - Grant Thornton, one of the top consulting and accounting audit firms, inspects USDC. Circle, Ltd. Provides publicly verifiable audits indicating the stablecoin is backed by US dollars (1:1) in segregated bank accounts. Freeh Sporkin & Sullivan LLP, a law firm, inspects USDT. Tether Holdings doesn't publish publicly verifiable audits indicating the backing of the stablecoin. It is unknown how often USDT audits their accounts.
Supported Blockchains - USDC runs on Ethereum, Algorand, Stellar, Solana, Hedera Hashgraph, and Tron platforms. USDT runs on Ethereum, Solana, and Algorand platforms.
Regulation and Licensure - USDC is regulated and fully licensed to provide services in its operational jurisdictions. There is considerable ambiguity on the regulation of USDT with an opaque operating structure.
Trading Volume and Liquidity - I consider liquidity and trading volume an important factor as an investor. USDT has a higher trading volume and liquidity than USDC (highest global trading volume), available in nearly all crypto exchanges. USDC is only available on most cryptocurrency exchanges. USDT also has a much higher amount of trading pairs across crypto-asset types compared to USDC, which supports above-average trading pairs.
Stable Coin Backing - USDC backing includes mostly cash and cash equivalents. USDT backing includes mostly assets of equivalent value.
USDC has a more efficient and unrestrictive purchase and redemption process compared to USDT.
Why I Preferred USDC to USDT
In my opinion, stablecoin issuers must provide regular breakdowns of their reserve compositions to manage opaqueness in a dynamic crypto landscape. As an investor, a lack of transparency produces a high-risk environment.
I considered USDC's reserve reporting more transparent than USDT's at the time.
USDC's market capitalization increased from just over $4 billion at the start of 2021 to $32.7 billion by the comparison date. A contemporaneous report documented that growth.
Two of the largest names in the cryptocurrency exchange and payment space are behind USDC. Circle and Coinbase have invested heavily in staying on the right track when it comes to global regulation, with the Centre consortium stating that regulated financial institutions back USDC.
USDC operated within US money-transmission laws and used established auditors and banks. I found USDT's reserve reporting less complete in the period I reviewed.
My preference rested on three points:
USDC operated within stated prudential and regulatory standards.
Circle provides assurances via the monthly reserve attestations that Grant Thornton issues. Grant Thornton is among the world's leading accounting firms.
The Centre consortium has built the primary economic activities underlying USDC within the perimeters of the US financial system.
The attestations gave me more information about whether USDC's reserve assets matched the tokens in circulation. Centre published those reports consistently during the period I reviewed, which increased my confidence in USDC relative to USDT.
I viewed USDC as an open digital asset connected to the oversight and operating structures of the US financial system. That structure differed from the USDT model I reviewed.
Over the last few years, USDT has received widespread criticism for its opaque operational structure. Granted, public disclosure of reserves is not a regulatory requirement for privately issued virtual currencies or stablecoins as of now.
However, Tether Limited has regularly avoided third-party audits of its reserves, despite claiming that it maintains the 1:1 reserve for all their issued tokens. While USDC's audits are not as extensive as full audits, they place Centre ahead of Tether Limited and other stablecoin operators in terms of safety and transparency.
I contend that USDC is far less controversial than USDT, and it has fewer concerning doubts over its reserves. Following a legal dispute with the New York Attorney General's office in February 2021, Tether was required to pay an $18.5 million fine and submit quarterly transparency reports. I find it difficult to trust digital asset operators who have to be litigated to release transparency reports.
Questions about dollar reserves aren't the only controversies I can find surrounding USDT either:
There have been allegations of price manipulation and a hacking incident in November 2017 where $31 million worth of tokens were stolen from Tether. At the time of writing, I had not identified a comparable incident involving USDC.
Nonetheless, the two stablecoins used similar underlying token technology, so I did not consider USDC inherently more secure on that basis. My preference instead came from the transparency and operating history I could assess at the time.
How I Chose Between USDC and USDT
The choice between USD Coin (USDC) or Tether (USDT) depended on the use case. At the time, I generally chose USDC because I gave reserve reporting more weight than USDT's additional liquidity and trading pairs.
There are only two cases that I can think of where I would opt to use USDT. The first is if I am seeking to execute short-term trades. In this case, the alternative stablecoin trading pairs (for USDC) may not exist. The second scenario is when I need to use advanced exchange features such as margin funding and futures trading. Both these use cases require an investor to be considerably experienced.
At the time, I generally preferred USDC when hedging crypto volatility, exchanging crypto assets to fiat or entering the market with fiat.
Overall, I preferred USDC in this historical comparison while recognizing USDT's liquidity advantage.